JAIIB PPB flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Repo rate

The rate at which RBI lends short-term funds to banks against government securities. An increase in repo rate raises borrowing costs, reduces liquidity, and is used to control inflation.

CRR

Cash Reserve Ratio: the percentage of net demand and time liabilities that banks must keep as cash with RBI. No interest is paid on CRR balances; it directly affects liquidity.

SLR

Statutory Liquidity Ratio: the minimum percentage of net demand and time liabilities that banks must maintain in cash, gold, or approved securities. It is prescribed under Section 24 of the Banking Regulation Act.

M3 money supply

Broad money comprising M1 (currency with public, demand deposits, other deposits with RBI) plus time deposits with banks. It is the most commonly used measure of money stock in India.

Monetary Policy Committee

A six-member committee chaired by the RBI Governor that sets the policy repo rate to achieve the inflation target of 4% with a tolerance band of plus or minus 2%.

Priority sector lending

Mandatory lending by banks to specified sectors such as agriculture, MSMEs, education, housing, and weaker sections. The overall target is 40% of Adjusted Net Bank Credit.

FEMA 1999

Foreign Exchange Management Act, 1999, which governs foreign exchange transactions in India. Current account transactions are generally free, while capital account transactions are regulated.

Section 138 NI Act

Provision under the Negotiable Instruments Act, 1881, making dishonour of a cheque for insufficient funds a criminal offence, subject to notice within 30 days and payment within 15 days.

Banking Regulation Act 1949

The principal law regulating banking companies in India. It defines banking under Section 5(b), prescribes licensing under Section 22, and sets CRR and SLR requirements.

KYC norms

Know Your Customer requirements obliging banks to verify customer identity and address, understand the nature of business, and monitor transactions to prevent money laundering and terrorist financing.

Garnishee order

A court order attaching money held by a bank on behalf of a judgment debtor. It does not apply to joint accounts where the debtor is not the sole account holder.

Banker's lien

The right of a banker to retain goods or securities belonging to a customer until a debt owed by that customer is repaid. It does not apply to deposits held in the customer's account.

NPA

Non-Performing Asset: a loan or advance where interest or principal is overdue for more than 90 days. NPAs are classified as sub-standard, doubtful, or loss assets.

Pledge

A mode of creating a charge where the borrower transfers possession of movable goods to the lender as security for a loan. The lender can sell the goods on default after notice.

Hypothecation

A charge created on movable assets without transferring possession to the lender. The borrower retains the assets but cannot sell them without the lender's consent.

Mortgage

A charge created on immovable property to secure a loan. The lender has a right to enforce the mortgage by sale of the property if the borrower defaults.

RTGS

Real Time Gross Settlement: an electronic funds transfer system where transactions are settled individually and in real time. The minimum transfer amount is ₹2 lakh.

DICGC insurance cover

Deposit Insurance and Credit Guarantee Corporation insures bank deposits up to ₹5 lakh per depositor per bank, covering both principal and interest, subject to conditions.

Double-entry accounting

An accounting system where every transaction is recorded with equal debits and credits. It ensures that the accounting equation (Assets = Liabilities + Capital) remains balanced.

Trial balance

A statement listing all ledger account balances at a given date. Total debits must equal total credits; it helps detect arithmetic errors but not errors of principle.

Capital adequacy ratio

CRAR measures a bank's capital in relation to its risk-weighted assets. It is calculated as (Tier 1 + Tier 2 capital) divided by risk-weighted assets, expressed as a percentage.

Provisioning norms

RBI guidelines requiring banks to set aside funds for expected loan losses. Rates vary by asset class: standard assets 0.25%–1%, sub-standard 15%, and loss assets 100%.

Bank reconciliation statement

A statement prepared to reconcile the cash book balance with the passbook balance, identifying items such as unpresented cheques, deposits in transit, bank charges, and errors.

Net interest margin

A profitability ratio calculated as (interest income minus interest expense) divided by earning assets. It shows how efficiently a bank earns from its lending and investment activities.

Depreciation

The systematic allocation of the cost of a fixed asset over its useful life. Common methods are straight-line and written-down value; it is a non-cash expense charged to profit.

Simple interest

Interest calculated only on the original principal for the entire period. Formula: SI = P × R × T / 100, where P is principal, R is annual rate, and T is time in years.

Compound interest

Interest calculated on both the principal and accumulated interest. Formula: A = P(1 + R/100)^T, and compound interest equals A minus P.

Present value

The current worth of a future sum of money or stream of cash flows, discounted at a given rate. Formula: PV = FV / (1 + r)^n.

Net present value

The difference between the present value of cash inflows and the initial investment. A positive NPV indicates that a project is financially viable and should be accepted.

EMI

Equated Monthly Instalment: the fixed payment made by a borrower each month to repay a loan. It includes both principal and interest, calculated using the reducing balance method.

Break-even point

The level of sales at which total revenue equals total cost, resulting in neither profit nor loss. It is calculated as fixed cost divided by contribution per unit.

Yield to maturity

The total return anticipated on a bond if held until maturity, equating the present value of future coupon and principal payments to the bond's current price.